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Country risk and increasing returns to credibility gains: analysis for an emerging economy

Author

Listed:
  • Kiara De Deus Demura
  • Ricardo Ramalhete Moreira

Abstract

This article aimed to test how the monetary and fiscal policies' credibility impacts country risk by analysing the case of a relevant emerging economy. We performed estimates through OLS and GMM which showed that fiscal credibility can negatively affect country risk, rather than monetary credibility. This evidence corroborated the role of fiscal consolidation in order to shape a low and consistent level of country risk. At last, based on MS-regressions, we identified nonlinear credibility effects, which can be called increasing returns to fiscal credibility gains, thereby representing an innovation regarding previous studies.

Suggested Citation

  • Kiara De Deus Demura & Ricardo Ramalhete Moreira, 2020. "Country risk and increasing returns to credibility gains: analysis for an emerging economy," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 7(4), pages 397-413.
    • Handle: RePEc:ids:ijfmkd:v:7:y:2020:i:4:p:397-413
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